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The Communicators

Sales Tax & the Internet News/Business. (2012) New.

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California 51, Joe Crosby 4, Steve 4, Mr. Horton 4, America 4, Mr. Crosby 3, Steve Delbianco 3, Us 3, Jerome Horton 2, Espn 2, Massachusetts 2, U.s. 2, Obama 1, Cara Griffith 1, Kara Griffith 1, Ronald Reagan 1, Online 1, United States 1, Macy 1, Cara 1,
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  CSPAN    The Communicators    Sales Tax & the Internet   
   News/Business.  (2012) New.  

    October 20, 2012
    6:30 - 7:00pm EDT  

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error of judgment and judgment is what we look for in the president of the united states of america. >> you can see more from this foreign policy debate from the 2004 campaign later tonight along with other debates on the same subject from our archives. watch the 1984 debate between ronald reagan and walter monday daily and from 1988, vice president george bush and massachusetts governor michael dukakis. it's starting at 7:00 p.m. eastern here on espn. >> well the issue of an internet sales tax has reared up again and in fact the u.s. congress and many states are looking at this issue and that's our topic this week on "the communicators." we want to start off by talking with the chairman of the california state board of equal ligse jerome horton. mr. horton, california has recently changed how it managed or its taxation policies when it comes to the internet, hasn't it? >> yes, peter, it has.
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it broadened the definition of what is taxable in california to include online retailers who meet certain criteria. >> now, said you broadened. how was it before and now who is included? >> prior to the law, the sales tax didn't apply to companies that had affiliates and worked through various different groups here in the state of california. the law broadened the definition of who actually qualities to include those individuals. so now online retailers who have affiliates in the state of california, who also have some form of brick and mortar either directly or indirectly working through other groups and in partnerships and so forth have next us in california by the definition of california law and therefore required to collect and collect the use tax in the state of california. companies that are now included would include amazon, best buy,
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and wal-mart that are making sales online. there are other criteria that you have to make $1 million, i believe, in total revenue and $10,000 a year to california consumers or something along those lines. >> now, mr. horton, how much in revenue does the state of california expect to generate through this new taxation policy and what's the rate of taxation? >> peter, the rate varies depending on the december destination where the product is delivered. it's somewhere around 9.75%. the total revenue that the state of california anticipated that it was losing was $1.4 billion. we believe that this new law will allow us to collect, generate an additional $317
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million a year, of which approximately $83 million is attributed to amazon alone. >> now, 9.75%, is that the same as the state's sale tax? >> the tax rate is exactly the same as the state's sales tax. the total rate varies because we have in california, a december nation tax, so it depends on where it's delivered and there are other taxes that are included in the overall rate. >> jerome horton is chairman of the california state board of equalization. thank you for giving us an update on what is happening in california. now we want to introduce you to a couple more folks talking about this issue. first, steve delbianco of a group called net choice and joe crosby with the retail industry leaders association. gentlemen, what is your group and what's his position when it
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comes to this internet sales tax? >> net choice is an online platform. our position is similar to what you might here. you do a lot of big author interviews. if you had the authors of our constitution in here talking, they would say they were really worried 225 years ago about the colonies having trade barriers to protect their businesses. the states can't regulate interstate commerce, only congress can. so our position on california has decided to get aggressive at determining who has presence in california, but that is in keeping with the constitutional provision. california is simply saying that if you have presence here through some interesting definitions, you got to collect for california. so it really doesn't interfere with interstate commerce, because they're considering anyone who has an affiliate there or a partnership in california to already be a california company. >> so two things, name a grew
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that's -- name a corporation that's a member of netchoice and are you -- so are you supportive of what california has done? >> our members are folks like e-bay, paypal, overstock, facebook, companies that -- >> amazon? >> amazon is not. companies that have platforms for everyone customers that enabled other companies to get online as well. california has taken too aggressive a step at asserting you have presence in california simply because you paid for an advertisement there. i'm gratified to see that california set a very, very reasonably high small cellar exception. they have to do a million a year in california and $10,000 a year through the partnerships and affiliate. that level of small seller exception is a proper one from small firms that they couldn't afford to bear. >> joe crosby is with the retail leaders association.
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mr. crosby, what is your group's position on an internet sales tax. >> thank you, peter. we represent retailers across the board including some of the larger retailers in the country and in the world. they're interested in seeing after 20 years of discussion and debate a level playing field created, as steve says, through congress, that congress ultimately has the authority to regulate interstate commerce and we think it's appropriate with some of the legislation that is out there and some of the simplifications included in the legislations to make it so that all retailers above a certain threshold can collect taxes in all of the states where taxes are legally due. >> mr. crosby, what california did, is that simplification in your view and do you support it? >> california, we support the activities that california has undertaken. the important thing to understand is california, as steve said, is doing everything it can under the limitations that the supreme court has placed upon the states. ultimately congressional
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interintervention is necessary to insure that retail is treated similarly across the board so that anyone who is selling is collecting tax where the tax is owed and doing so in a way that they can do easily enough with whatever simplifications congress might impose. >> and we want to introduce you to one more member of our panel. this is kara griffith with state tax notes. she is the legal editor and our guest reporter. >> thank you, thanks so much for having me. it's an absolute pleasure to talk to you guys and get your thoughts on this. as you guys mentioned, we have several bills pending before congress. it seems we need some sort of federal intervention to kind of get this issue taken care of. are we going to see movement on any of the bills that are currently pending? >> that's a great question. it is a foolhardy thing to predict congressional action especially when they're out now and will be coming back presumably after the elections for a relatively short period
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of time. we're certainly optimistic and we're working very hard. there is a lot of interest as you know. this year has been unprecedented in terms of the attention that the congress has given to this and other state tax issues. we're continuing to work diligently on it and are hopeful when congress resumes its work that there is an opportunity to move this forward, one of the various bills that is out there. >> cara, there has been movement as you know. i testified in each of the last two hearings on these bills. i think that movement is constructive. it's focusing on congress's role at protecting interstate commerce and congress trying to take seriously what minimum simplifications they can require before they allow states to export their tax collection burdens on businesses that aren't even having a presence in those states. that's a conversation i am glad that we're having and we're having an opportunity to talk about multiple rates per state that is still 9,600 different rates. the states haven't all agreed for a single filing form or a single audit. we're on the right attack for
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that conversation. will it happen in 2012, i doubt it. >> in terms of the simplification that we need, what are your thoughts? are one of the bills better than another? are there things that congress should focus on that they haven't yet? >> the legislation differs in the kind of minimum simplifications. the quid pro quo it puts on the states in order to let them import, export their tax collections. they all include the notion that the states have to provide some sort of software. it's not enough to have a software that looks up a rate for a given home address. software has to do electronic filing for the states in a standardized form, automatic remittance to every state. beyond software, there has to be compensation for vendors. software installation is expensive. handling questions from 46 different states and audits is expensive for business. they need compensation. we need to streamline the rates and definitions. the bills don't require the states to have the same
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definition for items that are taxable. >> now, in terms of providing software and things, where are the states going to come up with the money to do this? we have a difficult period of budgetary concerns. is that going to play a factor? >> well, they claim that they'll pay for that out of the new revenue that is brought in. joe and i have both been engaged with the streamlined sales tax project for over a decade. joe southeastern longer. streamline has several software vendors that will develop, certificate and deploy software as along as they keep a piece of the action, a piece of the sales tax that is collected. they don't always do all of the integration that the vendors and retailers in america need. more congressional leadership is going to be need. >> these things can definitely be worked out. for me, it's exciting that after almost 15 years of working on this, sitting next to steve here, that we're not talking about whether this should be done, but how it should be done. that shows how the debate has evolved over the 15 years. it's been going on for much
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longer that. i think there is a general recognition now that there is no principaled reason either legally or economically that sales taxes should not be collected on remote sales. it's a question of how they should happen. with regard to the simplifications, the bills do vary somewhat. they vary from the bills that have been out there previously. it reflects congress's normal balancing of the needs of interstate commerce versus the sovereignty right of the states. the supreme court has stepped in here as you know and said, well, here's the line. it's up to congress ultimately to determine where the line should be placed. i think that's what they're doing right now in the discussion that is being engaged on capitol hill, what is the right balance to ensure that the playing field is level for all sellers. while not dually unburdening sellers that don't have a physical presence in the state or putting too much of a burden on smaller sellers and what does that really mean. all of that is going on right now. i agree with steve that this is
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moving forward in a productive way and hopeful we'll get some activity soon. >> mr. crosby, if you represent, let's say, a macy's or a wal-mart in your group in the retail leaders association, they sell online plus brick and mortar. >> right. >> so where is the lost revenue for them? is there lost revenue for them? >> the revenue is the state's revenue. the retailers are simply collecting it on behalf of the state. >> one of the arguments that brick and mortar stores have made is that we lose revenue because it's cheaper to buy online. >> if you look at top line revenue, just the competitive advantage that a seller that is not required to collect tax has, jerome horton was just talking about the rate on average in california was 9.75%. have you that rate differential. of course, the consumer has a legal responsibility to remit taxes where they're not collected from by the retailer, the so-called use tax, but very few folks do that. for most consumers, you saw the
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news reports on california as this was being played out, by now, this is your last tax-free shopping day. this wasn't entirely accurate. it wasn't tax-free. it wasn't going to be collected from the seller and you're up to your own, you and the man in the mirror, to determine whether that is going to be paid or not. >> you know, the notion of fairness, though, fair is when everybody plays by the same rules. today that is exactly what happens. every business, online or offline, collects and files sales tax for every place that has a physical presence. so every online company collects and files in states where they have stores and every main street store collects in the state where they're located. this is a move to let states force businesses who don't have a business in the state to collect that ships a disproportionate burden on those remote retailers, folks that are out of state. in california, mr. horton told us that part of his law was to capture wal-mart.com and target.com. they already collect in california because they have stores in california. they have a physical presence
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that is integrated with the websites. what is new is that amazon began collecting a week ago in california. and amazon, as mr. horton said, is a big part of their expected revenue. if in fact the argument and the level playing field is so important, a week into it, we would expect a lot of stores in california to see growing sales as customers flock into their stores instead of buying online. well, don't hold your breath. that's not likely to be the case. people buy online for convenience, for choice, and for lower prices without even getting into the sales tax. >> is e-bay in your view an exception since it's often many used items? >> i would say that less than half of e-bay is used items. e-bay doesn't actually sell anything. e-bay is like a platform like classified ads. it's a platform for other sellers. it's a fabulous business platform for companies that otherwise would never reach that kind of audience with
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think new or used items. e-bay is a california company. it was looking out for the interests of small sellers from around the united states that have business. i'm glad that california said the answer was no, they had to be doing at least $1 million a year in california before they start looking in the eyes of the challenges of collecting for that state. >> if you had an e-bay seller who reaches that limit and they are required to collect -- >> if they are $1 million in california plus at least $10,000 a year that they spend with a california website or publisher, which would be the nexus to california since that california business would be in the eyes of the b.o.e., they would be acting as their agent. >> ok. >> i would like to take a moment to get back to the idea of fairness. fairness is a concept that
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ultimately is interpreted by the individual. steve posited, it's only fair because of the physical presence that the retailer has there. certainly there is fairness when you have a marketplace, a country where there are very few limits, very few barriers to commerce that all of the sellers are affected. and certainly, although people shop online or in stores for a variety of reasons, if you just looked at all of the news articles coming out of california, you would be hard-pressed to convince me that not paying tax was one of them. that was driving all of the reporting on this i find it hard to believe that the papers would cover it like that if there was, in fact, no interest on the part of the consumers and purchasing tax breaks. >> if i could follow up, it's a great point what the papers cover. you can also learn a lot by watching what the most effective companies is telling its wall street analysts and pursuant to securities exchange commission rules. amazon.com told analysts just last month, they drove them during their quarterly kale, you're about to collect sales
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tax, 10% in california, isn't that going to put a dent in your sales, the answer from amazon was an unequivocal no. they have become collecting in many states. they don't see an appreciative hit to their sales. they aren't buying on amazon to avoid sales tax. they have to stand in line if they want to return something. it isn't about the savings of sales tax. in california businesss are looking for this to save them, they have another thing coming. the biggest threat to a small california retailer is the wal-marts and targets and shopping malls. it's really not the internet. >> but in terms of fairness, let's kind of take to the small business, collecting sales tax seems to be a huge burden, maybe some of your small businesses are going to be blow some of the thresholds. there are those that are
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relatively small, they got a national presence because they're online. it seems very burdensome for them to try and figure out their sales tax liability to the various jurisdictions. is it fair to ask them when they stand to lose money that they nonetheless have to collect and remit sales tax? >> i think certainly there is obviously an administrative burden to collecting sales tax that all sellers that collect sales tax today face. that is one of the important things about the congressional legislation is making sure that the small business exception is set at a level so as not to burden the very small retailers. the simplifications in there are sufficient through, not just the simplifications, but also provision of software that works, that those smaller and even midsized businesses don't pay any more than necessary to deal with the collection costs. i think it's also important to note, there are small sellers across the country who are supporting this legislation including small e-bay sellers. there are folks on both side,
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even when you get down to the small business level. it's not as if it's monolithic, small business versus large businesses. you have both on both sides. many of the small sellers have come out publicly in favor of this legislation. >> fairness is a big position of it is where you sit right now. amazon, for instance, will be collecting for over half of the u.s. population by 2014 because they have expanded their presence, distribution centers. in california, they have two distribution centers coming up to give same-day delivery. they're collecting in more and more places. after awhile, if you're already collecting from most of the country, you would probably take any little bit of simplification as a way to reduce your costs and you also like the idea that it imposes new burdens on your competitors. so a lot of what amazon has done by endorsing some sort of federal legislation is to shift burdens it never had to bear
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before it became a $50 billion company. amazon at this point would like to see the burdens imposed on even the tiniest of its competitors. >> in looking at the bills and with the differing thresholds, is there one that is better? do you have an opinion on what the threshold should be to define what a small business is? >> there is a study on what small businesses were spending out of their own pocket to collect sales tax in the states where they already collect it. they concluded it was 17 cents for every dollar of tax they collected for businesses under $1 million a year in sales. that kind of burden was foremost in the mind to try to come up with a small seller exception. someone taking a look at just last year in the united states based on the internet retailer top 500, that the top 500 retailers here account for about 90% of the uncollected sales tax. so the states could potentially grab 90% of the sales tax that
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they want to collect and set that small seller exception at the number 500. if california is 1/7 of the national economy, a million times 7 is $7 million. that's the equivalent of a $7 million national exception there. >> looking at the washington study and the sales tax study that came after, you boil that down to real numbers. you're selling $1 million worth of goods, the sales tax rate is 7%, $70,000. if you're costs is 17% of that, 1/10 of your sales to comply with sales tax collection. it's not an insignificant sum nor is it insurmountable. there are two things to point out. one bill sets the threshold at $1 million. the study looks at sellers over $1 million, the costs dropped
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significantly. that study was done before any of the simplifications that have been put in place by the streamline states or calculated when the federal bills are put in place. those simplifications and software will reduce those costs. down to zero, no, but down to a level where the burden is something that can be dealt with. >> steve delbianco and joe crosby, we have been talking about california quite a bit. is there a state in your view that has done it well and done it right? >> many states maintain a single tax rate across the entire state. they don't allow the local cities and counties to add animosity kito abatement tax. and sales tax holidays, you don't pay sales tax on the first $50 of school supplies. rules like that is what makes collecting sales tax across the country insanely complex. so my own state of virginia has done a pretty good job at trying to be simple and be
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attractive to businesses. they exempt digital downloads to encourage that industry. they want to maintain a business friendly environment. >> i think this highlights the balance i talked about earlier, that congress has to strike between the burdens on interstate commerce and state sovereignty on the other, the things that make the sales tax more complex are the things the voters like, sales tax holidays, a threshold so you don't pay sales tax on the full price, a much reduced price. that's what consumers and voters like. it's a balance on one hand of the desires of the voters and the states and the desire for fairness and also for the states, frankly, to be able to maintain their taxes in a way that makes sense so that to the extent the taxes being imposed, and it's actually being collected. a number of states have done things like california. i think all of them, you asked is there a model? i think ultimately it's congress that's the model. there is so much each
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individual state can do. there is no way for each individual state to impose its tax system on the other state nor solve the larger problem that the supreme court decided without intervention. >> cara, the next question. >> assuming in a perfect world that we had one of those bills enacted this year. how long would it likely presumably get, software needs to be developed and implemented. any sense how long it would take? five years down the road or next year and it would roll out relatively quickly? >> the legislation in congress, it requires trivial things for the states to do, many of them would begin to demand tax collection immediately. it would certainly not take years. after all, software vendors are eager to get paid to implement systems to cover them. and how long would it take, but how much would it bring in. some of the numbers that we have heard are exorbitant
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exaggerations. i used the congress department numbers, the most it could be is $12 billion nationwide of new tax revenue. that sounds like a lot. it's over 50 states and remember there is $12 billion represents about half of 1% of total state and local tax revenue. this isn't the silver bullet to save the states from the fiscal woes. >> certainly the revenues won't save the states from the fiscal woes, but they would be happy to have that money coming in on legally owed taxes that aren't be collected today. the other thing, this is simply not just about revenue, it's about fairness. steve, if i remember correctly, in putting those numbers together, you looked at business and consumer sales? >> that's right. >> so 93% of internet commerce is business to business, not business to consumer. there is a substantially higher level of use tax with business sales, it's nowhere near 100%. i think steve's $12 billion number probably overstates it.
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it excludes 90% of e commerce, a significant is collecting, but not all of it, a base, what is that 16 times more than b to c sales, a small uncollected amount can generate substantial additional revenue above the $12 billion that steve articulated. >> ok. in the more likely scenario that we don't have a bill passed this year, are we going to see more movement on streamlined sales tax? >> next year, it will be back. it always comes back. the states are in a fiscal crunch. streamlined sales tax has lost some of its steam and badly in need of reinvillage ration. i think it will come back next year. there are a lot of large companies willing to lobby to bring that bill back this year. they're in alines with tax collectors who would like to see the tax revenue. it will be back next year. i hope the conversation drives straight in on the minimum simplifications.
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single audit, able to challenge the court in district court if it doesn't add here to the simplification. >> are there any states we should keep an eye on with further legislation or action? >> assuming that nothing happens in congress this fall, there will be some action in the states. a lot of states have already done what they can and now really are relying on congress. i could see potentially some action in massachusetts and maybe wisconsin and potentially michigan. there is a few others, pennsylvania, although they have already done some things on the regulatory side. it will definitely, if it doesn't get enacted, it will come back, no doubt about that. the issues that the federal government is dealing with its own finances and the likely impact on state governments of the change that the congress is considering make this a very attractive thing to consider. if you're on the one hand going to reduce federal funds to the states, you should at least give the states the tools to collect the taxes that they're
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already imposing. >> joe crosby is with the retail leaders association, steve delbianco is with netchoice, executive director, and cara griffith, our guest reporter is with state tax notes, the legal editor. thank you all for being on "the communicators". >> thank you, peter. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> he was the ideal candidate for the tea party. now suddenly he is saying what, who me? he is forgetting what his own positions are and he is betting that you will, too. i mean he is changing up so much and backtracking and sidestepping, we got to name this condition that he is going through. i think it's called romnesia. >> so this election is going to come down being a choice
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between two different americas, an america where government makes the rules, where government is larger and larger, where it takes more and more from the american people, where it runs more of our businesses and increasingly runs or live instead of america that makes it the nation it is, we back the britains pals of the declaration of independence, the right of liberty and the pursuit of happiness. >> president obama and mitt romney meet in the final debate moderated by crbs's bob schieffer from lynn university in boca raton, florida. it starts at 7:00 p.m. eastern followed by the debate at 9:00 and your reaction at 10:30, all live on espn, c-span radio and online at c-span.org. >> with monday's presidential debate focusing on foreign policy, we're going to look

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